DraftKings Inc (NASDAQ:) stock was on the move on Friday, rising more than 2% despite falling short of earnings estimates and lowering its guidance for the rest of the year.
In the first quarter, DraftKings generated $1.4 billion in revenue, a 20% increase over the same quarter a year ago. However, it was below the $1.46 billion that the Street had expected.
On the earnings front, DraftKings is still working its way toward profitability, which is not atypical for young growing companies that are investing heavily in their growth. In Q1, it shrank its net loss to $33.8 billion, or 7 cents per share, down from $142.5 billion in Q1 of 2024.
Adjusted earnings, excluding one-time special items and before interest, taxes, depreciation, and amortization, showed strong growth to $102.6 million, rising almost five-fold from $22.4 million. It posted adjusted earnings per share of 12 cents, up from 3 cents per share the same quarter a year ago. However, analysts were anticipating adjusted earnings of 20 cents per share.
In addition, DraftKings revised its fiscal year 2025 revenue guidance down to $6.2 billion to $6.4 billion, from the previous guidance of $6.3 billion to $6.6 billion. It also lowered its adjusted EBITDA guidance to $800 million to $900 million, down from the previous guidance of $900 million to $1.0 billion.
The reason? Customer-friendly outcomes in March, which means they lost a lot of money to sports bettors on March Madness, where all the favorites won.
“If not for customer-friendly sport outcomes in March, we would be raising our fiscal year 2025 revenue and Adjusted EBITDA guidance,” Jason Robins, DraftKings’ CEO and co-founder, said.
So why was the stock price rising?
Analysts See 56% Upside
There were likely a few factors at play that caused the stock price to jump despite what appears to be a lackluster quarter.
First, while the revenue guidance was lowered, it is still tracking about 32% higher than 2024. Same with the adjusted earnings, which would be up 370% at the midpoint from 2024 even with the lowered guidance.
Also, the drop in guidance is related to bad results for a past event, March Madness. So, that assumes that growth for the rest of the year will be on par with expectations, which likely pleased investors.
Further, the guidance does not include the guidance does not include the impact of mobile sports betting launching in Missouri in the fall. That event will certainly provide DraftKings with revenue not accounted for in the guidance.
In addition, investors may have been heartened by DraftKings’ growth in monthly unique players, which rose 28% year-over-year to 4.3 million. The surge was helped by the acquisition of lottery and gaming platform Jackpocket last year, but even excluding Jackpocket MUPs rose 11%.
Also, average revenue per MUP (ARMUP) was $108 in the quarter, down 5% but that was brought down by lower ARPMUP for Jackpocket customers. Otherwise, ARPMUP jumped approximately 7%.
DraftKings doesn’t have a trailing P/E because it hasn’t been profitable, but that is coming, and it has a forward P/E of 22.
While several analysts lowered their price targets slightly post-earnings, they are still overwhelming bullish on the stock. DraftKings stock has a median price target of $55 per share, which suggests 56% upside.
So despite the miss, DraftKings still looks like a good option for investors.